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Trouble with zero: The limits of subsidizing technology adoption

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  • Shukla, Pallavi
  • Pullabhotla, Hemant K.
  • Baylis, Kathy

Abstract

Do users value a free technology less than one they pay for? In a two-stage randomized trial of improved grain storage technology in India, we test whether subsequent user willingness-to-pay is affected by free distribution compared to a small positive price. We find paying an initial price of zero has a strong negative effect on users’ long-run willingness-to-pay but is not associated with differences in either reported use or benefits derived from the technology. The lower valuation implies a 20 to 30 percent decrease in long-run adoption, suggesting free distribution can stifle future markets for repeat-purchase goods.

Suggested Citation

  • Shukla, Pallavi & Pullabhotla, Hemant K. & Baylis, Kathy, 2022. "Trouble with zero: The limits of subsidizing technology adoption," Journal of Development Economics, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:deveco:v:158:y:2022:i:c:s0304387822000773
    DOI: 10.1016/j.jdeveco.2022.102920
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    Cited by:

    1. Shukla, Pallavi & Pullabhotla, Hemant K. & Baylis, Kathy, 2023. "The economics of reducing food losses: Experimental evidence from improved storage technology in India," Food Policy, Elsevier, vol. 117(C).

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    More about this item

    Keywords

    Reference dependence; Technology adoption; Agricultural subsidies; Zero price;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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